The penalty rate dilemmas

Poor Malcolm Turnbull. All the issues he faces seem so complex. And everyone wants yes/no answers.

Take the Penalty Rates issue for instance.

I’m reminded of the story of the Judgement of Solomon and the two women who both laid claim to the same baby. 1 Kings 3:16-28

All Malcolm would have been able to do would have been to say that he liked babies.

The Penalty Rates issue is a fundamentally complex issue reflecting economic and social changes that reach across our society.

For most of my lifetime and certainly that of my parents and grandparents, the week was divided into two parts. The part where you worked (Monday to Friday) and the part where you didn’t (Saturday and Sunday).

When I was a kid in New Zealand, it was pretty much unacceptable to mow your lawns on a Sunday. You couldn’t buy petrol over the weekend and no shops were open.

There was some work done over the weekend: on the wharves but normally only only on Saturday mornings and in wool stores work seven days a week when the wool clip was being sold. The country desperately needed exports.

Since the 1950s, the need for weekend work and hence overtime increased and this was during the time of labour shortages and the union movement was able to extract exceptionally high concessions for people who were prepared to work during what were traditional leisure times: Saturdays and Sundays. These rates were often the time and a half and double-time rates.

There were three important economic and social changes that occurred during this time.

The first was that work on Saturdays and Sundays became increasingly common as the working week extended into the weekend with shops being open seven days a week.

The second change was that overtime rates became an essential part of the weekly take-home pay for many breadwinners. Overtime was no longer a nice little bonus every now and then, it became an essential part of the pay packet.

The third is the casualisation of the workforce. Many people, by choice or by circumstances, work less than a 40 hour week. For some, this is a very convenient way of balancing work and family responsibilities. For many of these people, being able to work when they are paid penalty rates makes it possible to balance the family budget. Changes to penalty rates has a disproportionate effect on the earning capacity of this section of the community.

All this was complicated by a massive increase in competition in the retail market.

Massive competitive changes in the commodities market market have led to increasing downward pressure on prices and on the ability of retailers to pay penalty rates during times when they are unable to increase the price of the goods i.e. they can’t charge more for their goods over the weekend when they’re paying their staff more.

Given that small businesses and retailers represent a significant proportion of the employers in Australia, it’s necessary to find a solution to this problem. It doesn’t look as if the one we have at the moment is going to work.

So the Fair Work decision really highlights the collision of some fairly large social forces.

The march towards a seven day working week will not be stopped so there will be a need to regularise wages across a 7-day working week.

It is necessary to recognise that wages for many working Australians include penalty rates for overtime and that these penalty rates are essential for maintaining their standard of living. In other words, the wages of Australians need to be considered as package, the base rate plus penalty rates. It’s naïve to think that cutting penalty rates won’t be seen as delivering a pay cut to a significant section of the community.

It’s a complex problem. The solution to the problem is most certainly not simply cutting the wages of working Australians. But the answer is also not maintaining wage rates that small businesses are no longer able to sustain.

One aspect of the problem that no one has talked about his role that the Universities play in the labour market. There has been no discussion of what proportion of labour market who are earning penalty wage rates are university students who are obliged to work over the weekend because that’s when they don’t have to go to lectures. Now that’s probably an oversimplification but as a general rule that probably applies.

So what if universities delivered lectures seven days a week and freed up their students to work on days other than Saturdays and Sundays. And also delivered lectures 48 weeks a year.

Which brings us to the crux of the matter.

It is probably time get the penalty rate system to work differently. We need to reward people who work more than a given period, say 40 hours a week and who work more than eight hours in a given day. We need to reward people who give up time with their families.

But we also need to look carefully at how much cost a business can bear and it’s probably time to stop saying we will pay somebody twice as much simply because they happen to be working on a Sunday. But we may have to pay them more for working on the other days as compensation.